Ideally, your overall portfolio should outperform the market average. But even the best stock picker will only win with some Selection. At this point, some shareholders may suspend their investment in Castings PLC (LON:CGS) as the share price has fallen 18% over the past five years. The share price has fallen 18% in three months.

Let’s now take a look at the company’s fundamentals and see if the long-term return to shareholders matches the performance of the underlying business.

Check out our latest analysis for castings

To paraphrase Benjamin Graham, in the short term, the market is a voting machine, but in the long term, it is a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a sense of how investors’ attitudes toward a company have changed over time.

During the unfortunate half-decade that saw the share price fall, Castings actually managed to grow its earnings per share (EPS) by 8.8% per year. Given the share price’s reaction, one might suspect that EPS is not a good indicator of business performance during the period (perhaps due to a one-off loss or gain). Or perhaps the market was very optimistic beforehand, causing the stock to disappoint despite the improved EPS.

In general, we would like to see stronger share price increases due to continued EPS growth, but other metrics could provide an indication of why the share price development is relatively modest.

The consistent dividend doesn’t really explain why the share price has dropped. It’s not immediately clear to us why the share price has dropped, but further investigation may provide some answers.

The company’s revenue and profit (over time) are shown in the image below (click to see the exact numbers).

It is of course great to see how Castings has increased its profits over the years, but the future is more important for shareholders. It might be worth taking a look at our free Report on how his financial situation has changed over time.

What about dividends?

In addition to measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that takes into account the value of cash dividends (assuming that any dividends received were reinvested) and the calculated value of any discounted capital raisings and spin-offs. It’s fair to say that the TSR gives a more complete picture of dividend-paying stocks. In the case of Castings, the TSR over the last 5 years is 14%. That beats the share price return we mentioned earlier. This is largely due to the dividend payments!

The story continues

A different perspective

Castings shareholders have lost 9.3% for the year (even including dividends), but the market itself is up 17%. However, keep in mind that even the best stocks sometimes underperform the market over a twelve-month period. Long-term investors would not be so upset, having earned 3% each year over five years. It could be that the recent sell-off is an opportunity, so it might be worth checking the fundamentals for signs of a long-term growth trend. I find it very interesting to look at the share price over the long term as an indicator of company performance. But to really gain insight, we need to consider other information as well. However, keep in mind that Castings 2 warning signals in our investment analysis and 1 of them is significant…

We’ll like Castings better if we see some big insider buying. While we wait, check out this free List of undervalued stocks (mostly small caps) with significant recent insider purchases.

Please note that the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on UK exchanges.

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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.